WHICH PARTNERSHIPS ARE NOW IN SCOPE?

The scope of the Bermuda economic substance regime has been expanded to include all partnerships including limited partnerships, exempted partnerships, exempted limited partnerships, and registered overseas partnerships. Until the Amendment Act was passed, only partnerships which had elected to have separate legal personality under s4A of the Partnership Act 1902 were within scope of the regime.

WHAT ARE RELEVANT ACTIVITIES?

Partnerships which are engaged in a relevant activity must comply with the economic substance requirements.  Relevant activity means carrying on as a business any one or more of the following: banking; insurance; fund management; financing and leasing; headquarters; shipping; distribution and service centre; intellectual property; and holding entity.

WHAT ARE THE ECONOMIC SUBSTANCE REQUIREMENTS?

In summary, a partnership conducting a relevant activity will satisfy the economic substance requirements if: (i) it is managed and directed in Bermuda; (ii) core income generating activities (CIGA) are undertaken in Bermuda in relation to the relevant activity; (iii) it maintains adequate physical premises in Bermuda; (iv) there are adequate full time employees in Bermuda with suitable qualifications;  and (v) there is adequate operating expenditure incurred in Bermuda in relation to the relevant activity.

A partnership which is not registered as an exempted partnership, which only carries on business in Bermuda and which is not a part of a multinational group will be subject to reduced economic substance requirements.

REPORTING OBLIGATIONS

A partnership which is conducting a relevant activity will be required to file, on an annual basis, an economic substance declaration (Declaration) with the Registrar of Companies, confirming that the entity complies with the economic substance requirements.

The Declaration will require the disclosure of certain key information applicable to an analysis of substance requirements, including, but not limited to, (i) the nature of the relevant activity being undertaken and the CIGA being undertaken by that partnership in Bermuda; and (ii) the nature and extent of the entity’s presence in Bermuda.

WHAT ARE THE PENALTIES FOR NON-COMPLIANCE?

There are financial and other penalties for a partnership failing to meet the economic substance test. The Registrar of Companies has monitoring and enforcement powers which includes the power to fine partnerships for non-compliance, as well as having the power to apply to the Bermuda Court to make an order requiring a non-compliant entity to take any action to satisfy economic substance requirements, including to prohibit business activity.  The ultimate sanction, for repeated non-compliance with the economic substance requirements, is for the entity to be struck off the register.

WHEN WILL THIS APPLY?

All new partnerships formed on or after 1 July 2021 which are carrying on a relevant activity will be immediately subject to the economic substance requirements. Existing partnerships which have not elected to have separate legal personality and which are engaged in a relevant activity will have a six month transition period and must comply with the economic substance requirements from 1 January 2022.

If you have any questions about the Economic Substance Act and Regulations and how they may apply to your business or transaction, please contact your usual Appleby contact or a member of the team.  Appleby has created an online Economic Substance Entity Classification Questionnaire, which is available free of charge, and offers clear and concise guidance through the economic substance regimes of Bermuda, BVI, Cayman Islands, Guernsey, the Isle of Man and Jersey.

Share
Twitter LinkedIn Email Save as PDF
More News
26 Aug 2021 | News

Appleby Bermuda Is An Official Partner Of France Sail Grand Prix Saint-Tropez

Leading offshore law firm Appleby is an Official Partner of the upcoming France Sail Grand Prix. Sai...

Contributors: Brad Adderley
12 Aug 2021 | News

Appleby Bermuda Provides Summer Internships Across Practice Groups

Leading offshore law firm Appleby is delighted to provide internship opportunities to eight Bermudia...

10 Aug 2021 | News

Appleby Bermuda Awards 2021 Scholarships and Bursaries

Appleby’s Bermuda office is pleased to award four education scholarships and bursaries in 2021. Th...

26 Jul 2021 | News

Appleby Receives High Rankings in Chambers’ Annual High Net Worth Guide 2021

Lawyers from Appleby’s Bermuda, Cayman Islands and Jersey Private Client & Trusts practices ha...

21 Jul 2021 | Deals

Appleby Bermuda acted for UK’s largest special motor insurer

Appleby Bermuda acted for the UK's largest special motor insurer and Lloyds's underwriter ERS Insura...

30 Jun 2021 | News

Appleby team helps restore Warwick Pond’s native Bermudian ecosystem

Leading offshore law firm Appleby organised an employee volunteer day at Sherwin Nature Reserve to s...

11 Jun 2021 | News

Appleby And AGS To Sponsor And Speak On ESG And LATAM Panels At Bermuda Captive Conference

Appleby and Appleby Global Services (AGS) are pleased to once again sponsor the annual Bermuda Capti...

Contributors: Eduardo Fox